Bugle Sales Talk Editorial

An axiom we were taught in our Economics classes at University (all those years ago and which still rings true today) is if you want less of something, tax it. The recent increase in transfer duty from 8% to 11% for transactions greater than R2,250,000 in gross value, implemented from 1st March 2015, is a case in point. The additional amount of net revenue raised through this change in transfer duty rates by SARS is a mere R100m according to their published estimates which seems like nothing compared to the annual transfer duty receipts of R6,7bn. What is interesting is that the growth in transfer duty receipts by government, often a good proxy of where the property market is heading, has slowed from a growth rate of 49.44% in January 2014, to 7.9% in January 2015. With this already declining trend in transfer duty receipts to government, it is therefore surprising that the decision was taken to increase transfer duty on higher value transactions.

The overall effect is merely a distribution of wealth from people who transact at properties above R2,650,000 - the value above which you now start to pay more transfer duty, to those buyers transacting in properties below this level. We also know that the growth in the value of mortgage loans extended, a key driver of our residential property market, tends to track the direction of transfer duty revenue growth with a small lag. We therefore see that the growth in new mortgage loans granted (residential and commercial) peaked at 58.5% in February 2014 and then tapered down to 18.7% as at December 2014, according to the stats provided by FNB in their recently published Mortgage Market Barometer. On an annual basis new residential mortgage loans only grew by 2,8% as at December 2014. The main reason for this slowing in the growth of new mortgage loans granted can be attributed to the slowing economic growth over the past three years with 2014 ending with a lackluster 1,5% in GDP growth. Although the new mortgage market growth has slowed the bad debt situation of the four large commercial banks in South Africa has improved. The non-performing loan ratio of the four top commercial banks has decreased (improved) from a high of 10,5% between 2009 and 2010 to 4.1% as at December 2014.

The non-performing loans expressed as a percentage of total loans across all four big banks is therefore now only 4,1%. The approval rates of mortgage applications has steadily increased over the past five years and according to Ooba's published stats the effective approval rate has increased from 57.3% for the three months to May 2010 to 69.2% for the three months up to February 2015. This reflects the banking sector's gradual relaxation in lending criteria. We are still considered to be operating in a time of "abnormally low" interest rates. According to the South African Reserve Bank our CPI inflation rate as at February 2015 is now dramatically lower at 3,9%, dispelling all notions of a pending increasing interest rate cycle.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.